ECONOMY

The Left-Behinds

How three decades of flawed economic thinking have helped to create record numbers of long-term unemployed and undermine America’s middle class.

Unemployed and unwanted: Newer companies that might employ the children and grandchildren
of former steel workers in Braddock, Pa., fret that workers are “damaged goods.”(AP Photo/Andrew Rush)

BRADDOCK, Pa.—Movie director George Romero, the master of zombie kitsch, made his first films in the pitted and rusting landscape around this fabled steel town back in the 1960s and ’70s. It was fantasy then. But today, Braddock truly is the land of the living dead.

U.S. Steel’s Edgar Thomson Steel Works chugs on, as it has since 1875, but it’s a sprawling corrugated-metal relic of its former self. Its parking lot is almost empty at midday, and it employs several hundred workers rather than the more than 10,000 who labored here at its peak. The rest of Braddock, meanwhile, is a ragged reminder of the nearly forgotten era when western Pennsylvania’s Monongahela Valley rolled a century’s worth of steel for gleaming new American cities and factories.

This area used to be legendary for hard work; its progeny includes iron-tough football heroes such as Johnny Unitas, Joe Namath, and Joe Montana.

Today, Braddock is a black hole of apathy where the gravitational pull of despair is often too powerful to resist. Unemployment is chronically in the double digits, not so much because of displaced steelworkers—most of those jobs disappeared in the 1980s—but because of their children and grandchildren. These are the second and third generations of a lost tribe.

“We have manufacturing companies who say to us, ‘I don’t want to look at those people. They’re not used to showing up and coming to work anymore,’ ” says Stefani Pashman, head of the Three Rivers Workforce Investment Board in Pittsburgh. Unemployment counselors talk about the difficulties of teaching “soft skills”—such as simply showing up on time for an interview and wearing something nicer than a stained T-shirt. “The perception of these people as workers,” says David Coplan, director of the Mon Valley Providers Council, “is that they’re damaged goods.”

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It’s easy to write off the Mon Valley left-behinds as an old story limited to the specific woes of the steel industry. But in many ways, the people here are part of a much broader trend toward long-term unemployment in America. As in Braddock, and now a slew of communities laid low by the housing bubble and bust, the phenomenon can feed on itself and create a vicious cycle of disappearing jobs, declining incomes, higher foreclosures, and more layoffs.

In Stockton, Calif., a community of left-behinds has materialized in the wreckage of the mortgage meltdown. Just as European immigrants once streamed into the Mon Valley, descendants of California’s agricultural workers found jobs during the housing boom in home construction for middle-class families who worked an hour or two away in the San Francisco Bay Area. Now, a confluence of bad news has not only cost many of them their jobs but also plunged them underwater on their mortgages. Stockton’s jobless rate is 15.4 percent, fifth highest of any metropolitan area. Even though the city is only an hour’s drive from Silicon Valley, its inhabitants, like those of western Pennsylvania, are becoming damaged goods.

“We have a large population in their teens or 20s with relatively low levels of education,” says Jeff Michael, a labor expert at the University of the Pacific (Stockton). “It’s a huge problem: a whole generation of young people who are going to find difficult employment prospects.”

When Lee Farkas’s mortgage company collapsed and he went to prison, Ocala, Fla., lost 1,200 jobs.

Ocala, Fla., is yet another place where growth exploded during the housing bubble and then, almost as abruptly, imploded. As recently as 2007, the Santa Monica-based Milken Institute, which tracks job growth in metro areas, labeled Ocala the nation’s “best-performing city” for job creation. Riding on the debt-fueled housing bubble and a rising flow of sun-seeking retirees, Ocala enjoyed a flowering of construction companies and the cottage industries that fed them: metal fabrication, electronics, plastics. Ocala now has one of the highest rates of long-term unemployment—defined as 27 weeks or longer—in the country: 11 percent of its workers are officially unemployed, and almost as many more are either underemployed or have dropped out of the job market. More than 80 percent of the officially unemployed have been out of work for more than six months.

Adding felonious insult to injury, one of the entrepreneurs who stoked the city’s torrid growth was Lee Farkas, who opened one of the nation’s largest mortgage-processing facilities for Freddie Mac and Ginnie Mae. Farkas was recently sentenced to 30 years for fraud. When his company collapsed in 2009, 1,200 jobs disappeared overnight.

“We had a perfect storm, too,” says Pete Tesch, CEO of the Ocala/Marion County Economic Development Corp. “It’s going to be a long time before we build houses again.” He laments, “There is not an abundance of high-skilled or high-wage jobs, and these individuals with low to moderate educational levels and skills—where can they go?” In a recent study, the University of Central Florida projected that Ocala will face double-digit unemployment until at least 2016.